Saturday, 2 May 2009

Congressman alleges - China has cancelled America's Credit Card

The following appears in the Saturday edition (May 2nd) of The China Post.

WASHINGTON -- China, wary of the troubled U.S. economy, has already “canceled America's credit card” by cutting down purchases of debt, a U.S. congressman said Thursday.

China has the world's largest foreign reserves, believed to be mostly in dollars, along with around US$800 billion in U.S. Treasury bonds, more than any other country. But Treasury Department data shows that investors in China have sharply curtailed their purchases of bonds in January and February.

Representative Mark Kirk, a member of the House Appropriations Committee and co-chair of a group of lawmakers promoting relations with Beijing, said China had “very legitimate” concerns about its investments.

“It would appear, quietly and with deference and politeness, that China has canceled America's credit card,” Kirk told the Committee of 100, a Chinese American group. “I'm not sure too many people on Capitol Hill realize that this is now happening,” he said.

The Republican lawmaker said that China was justified in concerns about returns from finance giants Fannie Mae and Freddie Mac, which were bailed out by the U.S. government due to the financial crisis.

Kirk said he was the first member of Congress to tour the Bureau of Public Debt, which trades bonds, and was alarmed at how much debt was being bought by the U.S. Federal Reserve due to absence of foreign investors.

“There will come a time where the lack of Chinese participation may have a significant impact,” Kirk said.

This just adds to my concerns expressed in this article about the fact that the Fed could be facing a No-Win scenario.

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